SKorea urging NKorea to return to dialogue

South Korea's Unification Minster Hyun In-taek answers reporter's question after a forum in Seoul, South Korea, Monday, May 18, 2009. South Korea's unification minister urged North Korea on Monday to return to negotiations and stop threatening to halt the operation of a joint industrial complex on

/ AP

South Korea's Unification Minster Hyun In-taek answers reporter's question after a forum in Seoul, South Korea, Monday, May 18, 2009. South Korea's unification minister urged North Korea on Monday to return to negotiations and stop threatening to halt the operation of a joint industrial complex on the divided peninsula. (AP Photo/Yonhap, Park Ji-ho)

South Korea's Unification Minster Hyun In-taek answers reporter's question after a forum in Seoul, South Korea, Monday, May 18, 2009. South Korea's unification minister urged North Korea on Monday to return to negotiations and stop threatening to halt the operation of a joint industrial complex on the divided peninsula. (AP Photo/Yonhap, Park Ji-ho) (/ AP)

HYUNG-JIN KIM, The Associated Press

South Korea's unification minister urged North Korea on Monday to return to negotiations and stop threatening to halt the operation of a joint industrial complex in the communist country.

The North announced Friday that it was canceling what it calls "preferential" contracts for South Korean companies operating in the factory park in Kaesong, just north of the border. The North said it will write new rules governing the complex and the South must accept them or pull out of the zone.

The North's announcement signals a sharp raise in taxes, rent and wages at the complex – a move that would significantly reduce the appeal of operating factories in the North, where arbitrary border restrictions and closures have meant losses for South Korean companies.

On Monday, South Korea's Unification Minster Hyun In-taek said the North should reverse the move and comply with previous accords on the complex – the last major remaining reconciliation project between the divided countries.

"Now, the Kaesong complex is facing a crisis," Hyun told a forum in Seoul. "There should be a frank, sincere dialogue between South and North Korea."

South Korean officials have said they are not considering the industrial park's closure and Hyun reaffirmed Monday that the government "will do its best" to retain the zone.

"I'm not that pessimistic about the future of the Kaesong complex," Hyun told reporters in response to a question over whether he expects the North to eventually shut down the park.

Relations between the two Koreas have significantly frayed since a pro-U.S, conservative government took office in Seoul last year with a tougher policy on the North. Since then, reconciliation talks have been cut off and all key joint projects except the factory park have been suspended.

The industrial park opened in 2004 at a time of budding reconciliation between the Koreas. More than 100 South Korean companies employ some 38,000 North Koreans at the zone to make everything from electronics and watches to shoes and utensils, providing a major source of revenue for the cash-strapped North.

A South Korean man working at the complex has been detained by North Korean authorities since late March for allegedly denouncing the regime's political system. Hyun on Monday again demanded his release.

Last month, the two Koreas held their first government-level talks in more than one year, but there was little progress, with the North demanding higher wages and rent for companies operating at Kaesong and refusing to free the detained worker.

South Korea last week proposed a second session on Monday, but the North has not responded, according to the Unification Ministry.

Ministry spokeswoman Lee Jong-joo said that it's "regrettable" for the North not to respond to the offer but her ministry will again propose talks "at an appropriate time."

South Korea paid $26.8 million in wages in Kaesong in 2008 and $13.8 million in 2007, according to the Unification Ministry.

A South Korean trade agency said Monday that North Korea's external trade, excluding that with South Korea, rose 29.7 percent to $3.8 billion in 2008 from the year before amid growing Chinese economic influence over the country.

The Korea Trade-Investment Promotion Agency, however, said in a report the North's trade is likely to shrink this year amid the global economic slump and negative factors such as the country's April rocket launch.